Condemnors Say the Darndest Things

In New York, sanctions are rarely imposed on counsel during civil litigation; they are almost never imposed in Condemnation cases, which involve constitutionally protected claims for just compensation.

Recently, the frivolous arguments have grown as if on steroids. Established legal principles, logic, and ethics are seemingly abandoned in the hope of influencing the court. Here are two examples from recent cases:

In a real estate (fee) claim in which the Claimant presented evidence that there existed a reasonable probability of rezoning, the condemnor argued that the probable rezoning of the subject was “contrary to New York condemnation law” and “ignored the fact that prior to the Vesting Date, the property was burdened with a lease from Amoco gas station that ran until 2012, eleven years after the Vesting Date.” Essentially, the condemnor argued that because  C6-2A zoning does not permit gas stations or other auto-related uses, a rezoning to C6-2A would frustrate the intent of the lease. Thus, the Claimant would not only be precluded by the lease from applying for a C6-2A rezoning, but would have an obligation to oppose such rezoning or else it would constitute a “failure to do any act which may frustrate Lessee’s intent and purposes in entering into and performing under this lease.”

Our immediate response was, “Oh Boy!” The court terms this argument “frivolous”, which is defined as being “of little weight or importance.” Black’s Law Dictionary (6th ed, p. 608). In New  York, argument which is completely without merit and could not be supported by reasonable extension, modification, or reversal of existing law is frivolous. 22 NYCRR sec. 120-01(a) and (c).

We think calling the condemnor’s argument “frivolous” is being much too kind. Firstly, had there not been a condemnation, a rezoning to C6-2A would not preclude gas stations or auto-related uses. Any previously existing property uses  that would be inconsistent with a new zoning would be a legal non-conforming use.

Secondly, and more importantly, our opponents did not understand that the concept of “highest and best use” extinguished the lease. Simply put, in condemnation cases, property is valued on its highest and best use, regardless of its actual use. Real property taken by eminent domain is valued free of all leases, encumbrances and mortgages. The rule that real property is valued at its highest and best use free and clear of leases, mortgages or other encumbrances regardless of actual use on condemnation is so fundamental that just about every eminent domain decision begins with this statement.

In 1931, the Court of Appeals wrote in Matter of City of New York (Allen Street), “the City pays for what it takes and nothing else. By such taking it extinguishes all existing rights and interests in the property taken.” 256 NY 236 (1931). The Court stated, “even if the lease by the landlord to the tenant in this case had not obtained a clause expressly providing that ‘the term of the lease shall cease’ when possession of the property is taken by the city, nevertheless, by virtue of the fiat of the sovereign, the lease would ‘cease and determine and be absolutely discharged’ upon vesting of title which, indeed, preceded the actual taking of possession.” 256 NY 236 at 242. Also see Matter of Wilcox, 165 App. Div. 197 (2d Dept 1914). It is not a new principle. See Edmands v City of Boston, 108 Mass 535 (1871).

Here is another incredible example in a trade fixture claim. I had to see it in writing because the argument of why there should be no compensation for trade fixtures was so off the wall.

The Condemnor’s counsel moved to dismiss a trade fixture claim filed by a restaurant and bar because the trade fixtures were not removed. In a recent Second Department decision, the Court stated:

A government appropriation of real property encompasses the land and everything annexed thereto, whether classified as buildings or as fixtures (see Matter of City of New York [Kaiser Woodcraft Corp.], 11 N.Y.3d 353, 359). Under the trade-fixture rule, a claimant is entitled to compensation for trade fixtures it has a right under its lease to remove, but chooses not to remove. (Matter of Village of Port Chester, 42 A.D.3d 465, 466-67; see Marraro v State of New York, 12 N.Y.2d 285, 292-93; Whitehall Corners v State of New York, 210 A.D.2d 398, 399-400). Trade fixtures owned by a tenant are valued separately from the realty (see Matter of West Bushwick Urban Renewal Area Phase 2, 69 A.D.3d 178, 184) genrally as specialty property, based upon reproduction cost less depreciation, which is also referred to as “sound value” (Matter of City of New York [Kaiser Woodcraft Corp.], 11 N.Y.3d at 356).

Mazur Brothers, Inc. v State of New York, 97 A.D.3d 826, 828-29 (2d Dept 2012).

Here is the condemnor’s argument:

Upon information and belief, Claimant failed to remove its trade fixtures from its occupied space after the Condemnor acquired the subject property by eminent domain, resulting in Claimant’s abandonment of those items. In this proceeding, Claimant’s Lease is crystal clear that trade fixtures must be removed at the end of the lease term or they will be deemed “abandoned” and become property of the fee owner. As provided in the Rider to the Lease, the lease term ended once the Condemnor acquired the property by eminent domain.

Upon information and belief, Claimant never notified the Condemnor that it had any intention to remove trade fixtures from its rented space after the acquisition of the subject property. By not removing its claimed trade fixtures from the premises after the Condemnor acquired the subject property, Claimant abandoned those trade fixtures and any potential claim for just compensation relating thereto.

This is an incredible argument. Could counsel for the Condemnor actually believe that there is no basis in law or fact for presenting such merit-less ignorant argument? As stated above, upon condemnation the lease ceased to exist as a matter of law by virtue of the vesting of title pursuant to an eminent domain order. Simply put, the Condemnor does not secede to the rights of the landlord in its relationship to the tenant. Matter of City of New York (North River Water Front), 118 App. Div. 863 (1907), aff’d 189 NY 580.

Until our judiciary starts imposing monetary sanctions, we will likely continue to see these frivolous arguments.

Posted in Highest and Best Use, Leases, New York, Trade fixtures
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